Overview

The Sewickley Academy Endowment Fund (the “Endowment”) has a current market value of approximately $33.2 million and consists of over 60 individual funds. Some of these funds are endowed gifts, while the majority of them are donor contributions and surplus funds that have been designated by the Academy as “quasi-endowments.” These various funds that comprise the endowment provide perpetual financial support for financial aid, faculty chairs, instruction, support services, and other important Academy programs and services.

An endowed gift is intended to provide the Academy with a permanent source of funding by directing us to invest the principal amount of the gift and use a portion of the income it generates to support the designated purpose. Quasi-endowments are treated like endowed funds, except that there is no prohibition against spending any portion of a quasi-endowment in accordance with its designated purpose.

The Endowment Committee, a committee of the Board of Trustees, is responsible for the overall management of the Endowment. The committee members, who include both trustees and non-trustees, meet at least quarterly to review endowment performance, evaluate the investment manager performance, review the asset allocation, and make necessary changes as conditions warrant.

Asset Allocation

The endowment and quasi-endowment funds are collectively invested as a large, singular pool of funds (the “Pool”) via the TIFF Multi-Asset Fund (MAF). Although the Pool is invested as a singular fund, each of the endowment and quasi-endowment funds is tracked individually. The Pool is invested with the goal of preserving the purchasing power of the funds while distributing a meaningful, stable flow of income to the Academy, carefully balancing current and future needs. To achieve this goal, the MAF seeks to produce an annualized real, or inflation-adjusted, return of at least 5% — not every year but consistently enough to induce members to stay the course. The fund seeks to achieve its objective principally by: (1) diversification across asset classes and (2) active security selection. The asset allocations for the MAF as of June 30, 2013, are as follows:

Endowment Asset Allocation

Endowment Spending

The role of the Endowment Committee is to distribute an amount annually to the Academy that fulfills donor intentions and supports the Academy’s general operating budget (the Operating Distribution) and to retire Bonds (see discussion below). The amount of the Operating Distribution is determined annually by the Endowment Committee, taking into consideration both actual and projected results with respect to each of the following: (i) Endowment returns, gifts, distributions and market value; (ii) Sewickley Academy operating and capital plans; and (iii) Bond covenants and other financial constraints.

The goal of the Endowment Committee is for the Operating Distribution to be set at an amount each year not to exceed 5% of the average market value of the Endowment, net of Bonds outstanding, for the trailing 12 quarterly periods.

Pursuant to Pennsylvania law, the Academy elected in 2004 to base its spending policy for the endowed portion of the Pool on a “total return” approach that takes into consideration capital appreciation as well as dividend and interest income.

In 1997, the Academy issued $9 million of tax-exempt debt (Bonds) to fund construction and renovation costs associated with the Academy’s last major building and facilities project. During that same timeframe, the Academy also conducted its last major capital campaign. As a result of the outpouring of unrestricted gifts, a decision was made to invest the majority of contributions ($6.4 million) in the Endowment rather than to repay the Bonds. The goal was and remains that the invested gift proceeds and the earnings they generate will exceed the annual debt service costs. Each year, the Finance and Endowment Committees of the Board analyze whether it is more advantageous to the Academy to leave the Bonds outstanding or to repay them in advance of their scheduled maturity. Due to favorable tax-exempt interest rates and the solid returns the Academy has been receiving on its Endowment, it is anticipated that the Bonds will continue being repaid as scheduled, with a final maturity date in 2022.

As long as these Bonds are outstanding, the Endowment distributes to Sewickley Academy sufficient funds to cover the Endowment’s portion ($6.4 of $9.0 million, or approximately 71%) of debt service and out-of-pocket costs associated with the Bonds.

Performance Results

The return for the Pool for the fiscal year ended June 30, 2013, was 12.6%, net of fees. Please refer to the table of Endowment performance for further detail.